Results miss expectations
Business performance
In Q2, enterprise same-store sales rose 0.7%, helped by a 1.1% rise in traffic, which was offset by a 0.5% drop in average ticket. Dollar Tree continued to be impacted by softness in discretionary demand and changes in consumer buying behavior.
Same-store sales for the Dollar Tree segment rose 1.3%, driven by a 1.4% growth in traffic, offset by a 0.1% decrease in average ticket. Same-store sales for the Family Dollar segment dropped 0.1%, with a 0.7% rise in traffic offset by a 0.8% drop in average ticket.
During the quarter, the Dollar Tree segment recorded a 4.7% growth in consumables comps while its discretionary comps fell 1.9%. The Family Dollar segment saw a 0.3% rise in consumables comps while discretionary comps dropped 1.7%.
Gross margin in Q2 expanded 80 basis points to 30%, driven by lower freight costs, offset partly by higher sales of higher cost consumable merchandise, higher occupancy costs in the Dollar Tree segment and higher distribution costs in the Family Dollar segment.
During the quarter, the discount retailer opened 127 new Dollar Tree stores and 28 new Family Dollar stores. It converted around 1,600 Dollar Tree stores to in-line multi-price format and these stores achieved a comp store sales growth of 4.6% in Q2.
As part of its portfolio optimization review, Dollar Tree planned to close approx. 600 stores in the first half of 2024. By the end of Q2, the company had closed 655 stores, and it plans to close another 45 stores during the back half of the year.
Lowered guidance
Dollar Tree updated its outlook for the full year of 2024 to reflect its Q2 results, a more conservative sales outlook for the rest of the year, and incremental start-up costs related to the conversion of its recently-acquired portfolio of 99 Cents Only stores leases.
The company now expects consolidated net sales for FY2024 to range between $30.6-30.9 billion versus its prior expectation of $31-32 billion. Comparable store sales growth is expected to be in the low single digits for the enterprise as well as the Dollar Tree and Family Dollar segments. Adjusted EPS is now expected to be $5.20-5.60 versus the prior range of $6.50-7.00.
For the third quarter of 2024, Dollar Tree expects consolidated net sales of $7.4-7.6 billion. The company expects comparable store sales growth in the low single digits for the enterprise and both its segments. Adjusted EPS is expected to be $1.05-1.15.